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PVOD Concerns Again Negatively Affecting Theater Stocks

5 Jul, 2017 By: Erik Gruenwedel

Ongoing speculation about the future of premium video-on-demand has Wall Street again issuing renewed concern about the traditional theatrical window.

Share prices for Regal Entertainment, AMC Entertainment, Cinemark Holdings, Imax and other chains were down as much as 4% in July 5 trading.

Studios — spearheaded by Warner Bros. and 20th Century Fox — have publicly voiced approval for PVOD — a distribution strategy that would allow consumers to access new-release theatrical movies in the home at a premium price (from $30).

Warner CEO Kevin Tsujihara and Fox’s Stacey Snider are advocating for the PVOD option as a response to changing consumer habits toward movie consumption.

With Netflix and other SVOD services gobbling up market share and consumer’s time for largely episodic programming, studios see the traditional 90 to 120 day theatrical window as a growing liability as home video sales diminish.

“Under our base case analysis, film studios stand to gain $1.3 billion from PVOD to help offset their home video declines. This could lead to a net profit loss to exhibitors of $380 million even with beneficial splits of 15%, as the upside from sharing in PVOD revenues would not be enough to offset the lost profits from lower theatrical attendance,” MoffettNathason wrote in a recent note.

Morgan Stanley in a July 5 note said the theatrical window is “collapsing” as studios eye even higher-margin PVOD.

In addition, MoffettNathanson said Netflix alone upping spending on original movies could cost theater operators from $280 million to $930 million at the bottom line.

Netflix continues to release original movies through its global streaming channels with theatrical distribution as an afterthought, if at all. The strategy has backfired with theater operators in America, as well as in France, where they collectively refuse to screen or publicize the SVOD pioneer’s movies.

Amazon has taken a different approach, releasing movies in the traditional theatrical window — a strategy that saw its Manchester by the Sea release win both Oscar and Golden Globe awards.

Regardless, senior executives at Regal and AMC have voiced approval for PVOD provided theater operators are able to share in the upside.

“If we cannot forge an agreement on a new window that advances our interests, we'll take any and all necessary actions to vigorously protect the long-term interest of AMC and those of our shareholders,” CEO Adam Aron said in May. “Fortunately though, we have a seat at this table.”

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